New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

Commercial Litigation and Arbitration

New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
Commercial Litigation and Arbitration
« Back to Complex Lit Blog

Federal Arbitration Act — Court Must Look Through the Arbitration Clause to Ascertain Whether Underlying Dispute Confers Federal Jurisdiction — No Federal Jurisdiction Conferred by Counterclaim

Download PDF

From Vaden v. Discover Bank, No. 07-773, 2009 U.S. 1781 (U.S. Mar. 9, 2009):

[No Federal Jurisdiction from Counterclaim.] A complaint purporting to rest on state law, we have recognized, can be recharacterized as one "arising under" federal law if the law governing the complaint is exclusively federal. See Beneficial Nat. Bank v. Anderson, 539 U.S. 1, 8, 123 S. Ct. 2058, 156 L. Ed. 2d 1 (2003). Under this so-called "complete preemption doctrine," a plaintiff's "state cause of action [may be recast] as a federal claim for relief, making [its] removal [by the defendant] proper on the basis of federal question jurisdiction." 14B Wright & Miller § 3722.1, p. 511. A state-law-based counterclaim, however, even if similarly susceptible to recharacterization, would remain nonremovable. Under our precedent construing § 1331, … counterclaims, even if they rely exclusively on federal substantive law, do not qualify a case for federal-court cognizance.

[Footnote 12] Recharacterization of an asserted state-law claim as in fact a claim arising exclusively under federal law, and therefore removable on the defendant's petition, of course does not mean that the claim cannot remain in state court. There is nothing inappropriate or exceptional, Discover acknowledges, about a state court's entertaining, and applying federal law to, completely preempted claims or counterclaims. ***

.[Jurisdiction Depends on Underlying Dispute.]

The text of § 4 [of the FAA] drives our conclusion that a federal court should determine its jurisdiction by "looking through" a § 4 petition to the parties' underlying substantive controversy. We reiterate § 4's relevant instruction: When one party seeks arbitration pursuant to a written agreement and the other resists, the proponent of arbitration may petition for an order compelling arbitration in

"any United States district court which, save for [the arbitration] agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties." 9 U.S.C. § 4.

The phrase "save for [the arbitration] agreement" indicates that the district court should assume the absence of the arbitration agreement and determine whether it "would have jurisdiction under title 28" without it…. Jurisdiction over what? The text of § 4 refers us to "the controversy between the parties." That phrase, the Fourth Circuit said, and we agree, is most straightforwardly read to mean the "substantive conflict between the parties." ***

[Footnote 13] The parties' underlying dispute may or may not be the subject of pending litigation. This explains § 4's use of the conditional "would" and the indefinite "a suit." A party often files a § 4 petition to compel arbitration precisely because it does not want to bring suit and litigate in court. Sometimes, however, a § 4 petition is filed after litigation has commenced. The party seeking to compel arbitration in such cases is typically the defendant, who claims to be aggrieved by the plaintiff's attempt to litigate rather than arbitrate. This case involves the relatively unusual situation in which the party that initiated litigation of the underlying dispute is also the party seeking to compel arbitration.

[Jurisdiction Determined by Entire Controversy, As Pled; Discrete Counterclaim Not Severable for Arbitration.] In holding that Discover properly invoked federal-court jurisdiction, the Fourth Circuit looked beyond Discover's complaint and homed in on Vaden's state-law-based defense and counterclaims. Those responsive pleadings, Discover alleged, and the Fourth Circuit determined, were completely preempted by the FDIA.... The Fourth Circuit, however, misapprehended our decision in Holmes Group. Under the well-pleaded complaint rule, a completely preempted counterclaim remains a counterclaim and thus does not provide a key capable of opening a federal court's door. ***

There is a fundamental flaw in the dissent's analysis: In lieu of focusing on the whole controversy as framed by the parties, the dissent hypothesizes discrete controversies of its own design. As the parties' state-court filings reflect, the originating controversy here concerns Vaden's alleged debt to Discover. Vaden's responsive counterclaims challenging the legality of Discover's charges are a discrete aspect of the whole controversy Discover and Vaden brought to state court. Whether one might imagine a federal-question suit involving the parties' disagreement over Discover's charges is beside the point. The relevant question is whether the whole controversy between the parties — not just a piece broken off from that controversy — is one over which the federal courts would have jurisdiction.

***

It does not suffice to show that a federal question lurks somewhere inside the parties' controversy, or that a defense or counterclaim would arise under federal law. Because the controversy between Discover and Vaden, properly perceived, is not one qualifying for federal-court adjudication, § 4 of the FAA does not empower a federal court to order arbitration of that controversy, in whole or in part.

Share this article:

Facebook
Twitter
LinkedIn
Email

Recent Posts

RICO: (1) Victim vs. Perpetrator Enterprises — (2) § 1962(b): Elements of a Violation — (3) Meaning of “Interest” and “Control” in § 1962(b) — (4) The Defendant in a § 1962(b) Action Need Not Be an Enterprise; The Victim Must Be An Enterprise — (5) Acquisition/Maintenance Injury Required (6) Aiding and Abetting Liability under RICO

Rule 11 Sanctions: Request for Bill of Particulars re Sanctions Proceeding Reviewed for Abuse of Discretion — Court’s Discretion Narrows As Severity of Sanction Increases OR When It Initiates the Sanction Proceeding Itself — Particularly Strict Abuse of Discretion Standard Applied — “Rule 11 Does Not License a District Court to Sanction Any Action by an Attorney or Party That It Disapproves of” (Good Quote) — Failure to Provide Identify Specific Pleading and Detail Specific, Objectionable Conduct within that Pleading Violates Due Process — Failure to Provide Notice That Most Severe Sanction May Be Imposed Violates Due Process — Failure to Provide Notice That “Scarlett Letter Sanction” (Mandatory Circulation of Sanctions Order) Or Other Sanction That Could Leave Indelible Imprint on Career Might Be Imposed Violates Due Process — Notice That Law Firm Might Be Sanctioned Insufficient to Afford Notice to Firm Lawyer and Managing Partner That He Might Be Sanctioned — Refusal to Impose Additional Sanction Until Impact of Other Imposed Penalties (Not Sanctions) Ascertained to See Whether Sanction Needed

Rule 37(c)(1) Sanctions: (1) Exclusion of Expert Testimony Reviewed for Abuse of Discretion Even When It Results in Summary Judgment — (2) Whether Physicians Must File 26(a)(2)(B) Report Depends on Whether They Formed Their Opinions for Litigation Or in the Course of Medical Treatment — (3) Party Seeking to Avoid Exclusion of Its Expert for Noncompliance with Rule 26 Bears Burden of Showing Harmlessness or Substantial Justification — (4) Expert Report Subject to Exclusion If It Is Conclusory and Does Not Meet the Level of Rigor Required by Rule 26(a)(2)(B)

RICO: The Statute Defines Enterprise Broadly, “But That Breadth Is Not Without Limit” (Good Quote) — Enterprise Inadequately Pled Where Plaintiffs Fail to Name the Common Purpose, Explain How the Relationships Among the Defendants Allowed Them to Advance That Purpose, Or Specify the Period of Time Sufficient to Achieve That Purpose — In a Particular Case, the Pattern of Racketeering May Be Sufficient to Infer the Existence of an Association-in-Fact Enterprise, But Pattern Does Not Necessarily Establish Enterprise — A RICO Conspiracy May Exist Regardless of Whether the Substantive RICO Violation Is Consummated, But the Substantive Violation Must Be Adequately Pled

RICO: (1) Claim Accrued When Plaintiff Suffered, and Was Aware of, Her Injury — Overt Retaliation in Her Employment As A Result of Reporting Another Employee’s Sexual Misconduct — Not When a Report Confirming that Misconduct Later Became Public; (2) Inhouse Lawyer’s Conclusion No Sexual Misconduct Occurred Is a Mere Expression of a Legal Conclusion, Not Deception Warranting SOL Reprieve Due to Equitable Tolling or Fraudulent Concealment — Plaintiff Exhibited Lack of Diligence in Failing to Consult Own Counsel or Challenge Inhouse Counsel’s Conclusion; (3) Causation: Plaintiff Must Prove Her Injuries Were Directly Caused by the Predicate Acts — (4) Concealment of Report Commissioned by Employer Directly Harmed Employer (by Exposing It to Liability) and Victims of Sexual Misconduct, and Only Indirectly Harmed Plaintiff Who Suffered Retaliation in Her Employment for Reporting the Misconduct

RICO: Without Injury to Business or Property, Injury Resulting from RICO Violation Is Not Actionable under RICO — Meaning of “Property” in § 1964(c) — Meaning of “Business” in § 1964(c) — Mere “Expectancy Interests” ≠ Business or Property — Loss of NCAA Eligibility = Loss of a Status, Not Loss of Property — Pecuniary Losses (Here, Attorney’s Fees) Flowing from a Non-Cognizable Injury Are Not Recoverably via RICO

RICO: Enterprise Not Sufficiently Distinct from Defendant Where Enterprise Allegedly Consisted of the Defendant Corporation, Corporate Employees, Their Counsel and “Friends”

FRAP 38 Sanctions Should Not Lightly Be Awarded on the Ground That an Incorrect Argument Was Frivolous — “An Appeal Can Be Weak, Indeed Almost Hopeless, Without Being Frivolous” (Good Quote) — There Must Be “No Legitimate Basis for Pursuing the Appeal” (Good Quote)

Severe Emotional Distress and Trauma ≠ RICO Injury — Parents’ Voluntary Financial Support of Adult Daughter Who Was Forced to Sign Over Her Annuity in Violation of RICO Not Proximately Caused by RICO Violation — Injury Is Derivative, Not Direct (Intimation of Different Result if Financial Support Required by Law) — RICO Injury Is Requirement for Statutory Standing (12(b)(6) Issue), Not Constitutional Standing (12(b)(1) Issue)

RICO — Neither Filing a Complaint Nor Issuing a Press Release Constitutes Wire Fraud — Litigation Privilege Is Absolute and Bars All Tort Claims Other Than Malicious Prosecution — Abuse of Process Claim Barred (California Law)

Archives
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

New York Office

© 2024 Joseph Hage Aaronson LLC  
Disclaimer | Attorney Advertising Notice | Legal Notice